Tuesday, February 2, 2010

Global Factors Affecting the Wine Supply Chain

Here in metro-Orlando, as was the case in much of the U.S. and the rest of the developed world, the bursting of the real-estate bubble, and the attendant financial crisis, has resulted in significant job loss and, for those still employed, a reluctance to spend. These tectonic forces in the broader economy have had significant shaping influence on the wine supply chain.

The wine supply chain has demand and supply components which, in a perfect world, should be in equilibrium (Doesn't happen ever.). The supply side of the chain is comprised of wineries, winery reps, distributors, wine shops, and restaurants all working to get the appropriate product to the customer in a timely fashion. While not an element of the formal supply chain, there are a number of entities that seek to exert influence over the customer buying decision by professing knowledge or expertise not possessed by the customer. An example of such an "influencer" is The Wine Spectator.

With the audience for high-end wines either laid off or reluctant to spend, there is a significant degree of sluggishness in this aspect of the market (www.winespectator.com/webfeature/show/id/41315). The publication Western Farm Prices (www.westernfarmprices.com/grapes/wine-sales-12031) sees the target market for high-end wines changing their buying practices or leaving the market entirely. This market shift on the demand side is being reflected in portfolio reshuffling on the supply side and the changes in the direction being given by influencers. For example, the average price per bottle for the top 10 wines in The Wine Spectator's top 100 lists over the past six years were as follows: 2004 - $95.80; 2005 - $115.80; 2006 - $62.50; 2007 - $99.80; 2008 - $68.80 and; 2009 - $47.50. The data show that the average price per bottle in 2009 was the lowest of any of the years examined and asks the question whether the influencers are really impacting buyer decisions or whether the reverse is actually true.

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